ETHIOPIA

An Emerging Market Opportunity?

STUDENT NAME:
Submission Date:
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Contents
Introduction ................................................................................................................................................... 3
Problem Statement ........................................................................................................................................ 2
Situational Analysis ...................................................................................................................................... 2
Industrial Policies and Market Opportunities ........................................................................................... 2
Key Success Factors ................................................................................................................................. 3
PEST Analysis .......................................................................................................................................... 3
Porter’s Five Forces Analysis ................................................................................................................... 3
Market Entry Options ............................................................................................................................... 3
Local agent or importer ......................................................................................................................... 3
Licensing arrangement .......................................................................................................................... 3
Joint venture .......................................................................................................................................... 4
Subsidiary ............................................................................................................................................. 4
The Three Companies ................................................................................................................................... 4
CareCo ...................................................................................................................................................... 4
SWOT Analysis .................................................................................................................................... 4
Stregnths ............................................................................................................................................... 4
Weaknesses ........................................................................................................................................... 4
Opportunities......................................................................................................................................... 4
Threats................................................................................................................................................... 5
Recommendation .................................................................................................................................. 5
ShoeCo ...................................................................................................................................................... 5
SWOT Analysis .................................................................................................................................... 5
Strengths ............................................................................................................................................... 5
Weaknesses .......................................................................................................................................... 5
Opportunities......................................................................................................................................... 5
Threats................................................................................................................................................... 6
Recommendation .................................................................................................................................. 6
MedCo ...................................................................................................................................................... 6
SWOT Analysis .................................................................................................................................... 6
Recommendation .................................................................................................................................. 6
Appendices.................................................................................................................................................... 8
Appendix: 1............................................................................................................................................... 8
Appendix: 2............................................................................................................................................... 9
Appendix: 3 (SWOT Analysis of CareCo) ............................................................................................. 10
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Appendix: 4 (SWOT Analysis of ShoeCo) ............................................................................................. 11

Appendix: 5 (SWOT Analysis of MedCo) ............................................................................................. 12
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Introduction
In early 1970s, Ethiopia estate was run by military junta in which it has faced many challenges
such as huge corruption and human rights abuses which push it backward and considered as the
poor estate worldwide and a landlock country. After that the Ethiopian Peoples’ Revolutionary
Democratic Front (EPRDF) comes forward and in 1994, a new constitution was formed which
provides many opportunities for foreign direct investments. Three companies from different states
were considering to enter into this emerging market to maximize its profits. Ethiopian government
has been recognized worldwide as the 129th of 189 countries for providing the easiest investment
opportunities.

Problem Statement
The top management of three companies- CareCo, SheoCo and MedCo, in January 2014, were
discussing the available opportunities in Ethiopia for foreign direct investment. The management
argued that Ethiopia has carries a potential attractive market for investment because of its
economic and market factors.

Situational Analysis
Ethiopian government has opened many doors for FDI by providing tax exemption, easy entering
strategies, low custom duty, free market and other attracting benefits. The government encouraged
entrepreneurs by privatizing 300 companies to increase competition among companies to
strengthen the economy. A detailed external analysis of Ethiopian market has been performed.
Industrial Policies and Market Opportunities
As discussed earlier that Ethiopian government has introduced state-led developmental model by
providing more relaxing policies for foreign direct investments and a huge public investment in
common sectors such as logistics, transportation, power and communication sectors which attract
many potential foreigners to invest in this growing market. The growth in population has been
increased by 30% from 2003 to 2013, and the GDP has also been increased from $8.6 billion to
$47.5 billion representing that customers and their purchasing power would be increased in future
with a wide margin and labor cost will decrease. Care and service providers sectors represent a
high economic growth as compared to manufacturing sectors. The government holds some sectors
such as telecommunication, financial sector, air transport, shipping and power sectors, this creates
monopoly of these companies. Along with this, government also reserved some sectors for
domestic companies such as retail, media and transportation. Furthermore, it introduces attracting
policies for foreign direct investments in the sectors such as export oriented, agro-processing,
agricultural products and local manufacturing companies by providing tax exemption for up to its
5 starting years and providing more tax exemption from standard time period to those companies
which would be established in underdeveloped areas. Additionally, it provides custom duty
exemption for capital goods and ranked as the 129th of 189 countries for providing the easiest
investment opportunities worldwide.
Key Success Factors
When companies making decision to invest in a particular market, they first should evaluate its
success critical factors. Ethiopia’s market currently has the following success factor for investment
which has been discussed in detail. Ethiopian government has invested in the transportation and
made a high-speed logistics’ infrastructure and an air-cargo terminal but, the foreign trade surface
logistics are dependent on the port of Djibouti. This ranked it at the bottom for providing cross-
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border trade and the carries a high logistic cost for companies. Additionally, there is a frequent
power breakdown and the internet outages, which created many hurdles such as companies should
have standby generator for power backup. Ethiopian universities’ produces more then 10,000
graduates with skills each year which lowering down the labor cost, but there is a cultural gap
which is difficult to mitigate. Some graduates come in the industry after having training sessions
from UAE and Europe, this made them skilled person, but they are scarce in number and costly.
As Ethiopia is a developing country and carries small companies, the competition is limited, and
it is easy for the huge companies to enter to gain the market share. In Ethiopia, there were only
few local retailers and retail chains and the foreigners have to contact with them which is costly
and time consuming. Ethiopia’s customers have different cultural values and norms. To avert this,
foreigners have to make a joint venture with local firms. The government can only provide
protection for the local company’s intellectual property. While, there is number of pirated
companies which is using other brands. High corruption was prevailing in the public sector and
receives attractive tenders.
PEST Analysis
A detailed PEST analysis has been performed. Ethiopian government has introduced an effective
investing policy for foreigners in which its main focus is to improve its technological information.
Ethiopia’s economy is in its developing phase and carries huge potential customers because of an
increasing population. Its social environment is welcoming, and the government allow tax
exemptions for investors.
Porter’s Five Forces Analysis
A detailed Porter’s five forces analysis has been performed. The Ethiopian government holds some
sectors such as telecommunication, financial sector, air transport, shipping and power sectors, this
creates monopoly of these companies in the market. The threat of competition is limited. The threat
of the substitute products is moderate along with a high threat for new entrants. Buyer’s purchasing
power is high because of an increasing trend in country’s GDP which will result in an increase in
per capita income.
Market Entry Options
There are four ways for entering in a foreign market which has been discussed below:
Local agent or importer
This option requires to work with the local agents to sell the product. This option carries a low risk
for entering in to the market because local agents has the strong relationship with the Ethiopian’s
customers and most importantly, they know their cultural values and norms.
Licensing arrangement
Licensing and franchising allow the local companies to use multinational brands and requires
sharing of technology, process and other information. This is risky in term of intellectual property,
but the locally produced products will have competitive price.
Joint venture
Joint venture requires a partnership in the equity stake but enjoys benefits received from the local
partner.
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Subsidiary
When a parent company establishes another wholly owned company and does not want to share
its technology or profits, it formed subsidiary limited company. But this option carries huge risk
because the parent company has to mange all things alone.

The Three Companies

CareCo
CareCo. Company is established in 1961. It manufactures personal care products and many of its
brands are well known globally. It has entered the markets of Asia, South America and Eastern
Europe.
SWOT Analysis
Stregnths
Care co. Company has explored the Asian, South American and Eastern Europe’s markets. It has
experience of working with local distributors and this strategy has been proved as the Low cost
and low risk. But the high margins of profit get low in short term because of the lack of interest of
local distributors that is why CareCo started building its own subsidiaries. Another opportunity for
the CareCo company is that there is a high level of awareness among the users in Ethiopian market
which gives an estimated $125 million market share in the country but the CareCo team is
optimistic about the market and have expectation that there will be a 15% to 20% growth in the
market share of the company.
Weaknesses
The company has faced fierce competition in the foreign markets and eventually face a decline in
the growth rate of profits. In Ethiopia it has lost the chance of first mover advantage because its
competitor has already entered the Ethiopian market and started local manufacturing of its
products.
Opportunities
The Ethiopian government is interested in increasing the foreign direct investment for the
development of its country. The government has worked on transportation, telecommunication and
power supply infrastructure in order to provide better market for working and growing the private
sector. With 23% of public debt in GDP the government is strong enough to finance its project.
The population of Ethiopia has grown up to 30% during the last decade which can lead to increase
in demand in coming 12 to 15 years. The government has encouraged the foreign direct investment
in export-oriented sectors which requires knowledge and technology inflows. Such sectors are
manufacturing, agro-processing firms and the production of agricultural products. In order to
encourage such companies, the government has provided the five years income tax exemption for
the investors. These industries could attain the opportunity of additional tax deduction after the
completion of standard tax exemption time in case of underdevelopment. It also provides customs
exemption for the private sector companies investing in capital goods such as plant and machinery.
Ethiopia is providing a supply of skilled and affordable labor because it is producing
approximately 10,000 graduates every year, but the companies have to work on cultural bias and
adopt the management style that can support the country’s culture. The industry of Ethiopia is still
developing and weak in quality and marketing areas, so the strong firms who have better marketing
technique and resources and extensive capital investment, to capture a large market share.
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Threats
Although, the government has made massive investment in the infrastructure but the infrastructure
for the cross-border trade and logistics is very weak and ranked at the bottom by the world bank
because Ethiopia is a landlock country and dependent on its neighbor countries for connecting to
the world that can increase the cost. The distribution channel is fragmented and very few retail
chains are available with a large number of small retailers. It is quite costly to reach all of the
retailers and the wholesaling; therefore, the company has to work with a domestic wholesaler.
High rate of corruption is another threat to the foreign investors because lack of transparency
creates hurdles in winning tenders and availing the facilities. (see appendix 3)
Recommendation
Based on the above analysis it is recommended that CareCo should build its own subsidiary in
Ethiopia. Although the costs are high, but the returns will be high too because there are many
opportunities for those companies who are starting their manufacturing in Ethiopia as government
is providing tax and customs exemptions, as well as improving its infrastructure and accessibility
of low-cost labor. On the other hand, the company can manufacture most of its products from its
portfolio and can easily access the local market and determine the price market effectively and can
ensure the provision of high quality and can work on its branding and positioning of the products.
This will pay back in 5 to 7 years. (see appendix 2)
ShoeCo
ShoeCo is a successful footwear manufacturer. it was founded in 1991 in China, it produces
leather footwear casual as well as formal. It has got a tremendous success and growth in
exporting its products in Ethiopia and now its team is heading towards availing the opportunity
more aggressively. In 2003 the company has started developing its own brands.
SWOT Analysis
Strengths
The company has successful experience in exporting its products in Ethiopia and have a large
market for its products and it is increasing 10% annually and it is expected to e grow more
rapidly in the future. The company has efficient workers and ability to avail the opportunity
through efficient and hard working. The company already has a developed market in the
Ethiopia, and it’s expected to increase up to $40,000 million.
Weaknesses
The company has import only strategy that relies on only importing goods to the other countries
rather than exploring them through local manufacturing. It does imports with the long-term
contracts to local distributors which may sometime leads to decline in profits due to lack of
interest of local distributors.
Opportunities
The population of Ethiopia has grown up to 30% during the last decade which can lead to
increase in demand in coming 12 to 15 years. The government has encouraged the foreign direct
investment in export-oriented sectors which requires knowledge and technology inflows. Such
sectors are manufacturing, agro-processing firms and the production of agricultural products. In
order to encourage such companies, the government has provided the five years income tax
exemption for the investors. These industries could attain the opportunity of additional tax
deduction after the completion of standard tax exemption time in case of underdevelopment. It
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also provides customs exemption for the private sector companies investing in capital goods such
as plant and machinery.
Threats
Protection of the intellectual property is unreliable, Ethiopia has not signed all the international
intellectual property protection treaties and the main focus of the intellectual property office is to
protect the materials and copyrights of Ethiopia. The state has made monopoly or dominance in
some sectors that restricts private companies to compete because of their political contacts and
unfair availability of facilities and ease of wining tenders. The Ethiopian government has protected
the local firms in some industries which are reserved for only domestic companies such as media
retail, transportation as well as the manufacturing of pharmaceutical products. Although, the
government has made massive investment in the infrastructure but the infrastructure for the cross-
border trade and logistics is very weak and ranked at the bottom. (see appendix 4)
Recommendation
Based on the above analysis the Shoe Co should adopt the strategy of licensing for capturing the
market because through licensing the company can gain the local knowledge of market and easy
access to the retail market as well as the information of the culture , values and norms then it will
be easy to manage the product line that products according to the local culture with low
investments.
While on the other hand, if the company go for building it subsidiary it will be costly for the
company because it requires massive investment but as well as the high costs of logistics because
of low infrastructure and heavy costs of manufacturing because of power cuts and internet outages
etc. (see appendix 2)
MedCo
MedCo was established in 1983 in the UAE. It manufactures and sales generic pharmaceutical
medicines. It has explored the markets of Middle east and North Africa.
SWOT Analysis
The company has its own generic products which it sells in local packaging. It has established its
subsidiaries where it has found lean and agile manufacturing facilities. The company is very
efficient in producing and managing its products. The company has government in its customers
base but none it’s wanting to increase its customers base and get to the local people.
While the company can only serve to a smaller market because of its ability of small production
batches. In addition to this the company’s growth is become slowing down in the markets of
middle east and north Africa because of the maturing of its business in these markets as well as
their internal political disturbances. (see appendix 5)
Recommendation
the above analysis reveals that the company should establish its own subsidiary with its ability of
working efficiently, it will increase their ability to serve a wider market, set a competitive price
as well as manage the brand image, position the products and protect the intellectual property.
(see appendix 2)
As well as availing the facilities provided by the government will boost their profitability and
performance, lower the costs due to tax and custom duty exemptions and special preference
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given to the local manufacturing of pharmaceutical products is an additional advantage for the
company. In addition to this low cost of inputs increases the profitability. There is an expected
market of $200 million in Ethiopia. Although, there are many facilities, but the company has to
face some challenges in establishing it subsidiary such as fragmented distribution channel with
3500 individual pharmacies and a competition with the Indian and Chinese pharmaceutical
companies.
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Appendices
Appendix: 1
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Appendix: 2
Strategies CareCo ShoeCo MedCo
Pros Cons Pros Cons Pros Cons
Local agent Low High Low risk Low profits Low Intellectual
or importer investment custom Less No control investment property
Local duty barriers Local loss
cultural Low profits Local cultural Low profits
information Low information information
market High
share growth
Licensing Low Low profits Low Low profits Low Losing
arrangement investment Technology investment Technology investment know how
Local sharing Local sharing Local
cultural Intellectual cultural Intellectualcultural
information property information property information
loss loss Less
competition
Government
acceptance
Joint Low risk Sharing of Low Low profits Low Low profits
venture Less stake investment High risk investment High risk
barriers Local Intellectual Local Intellectual
Local cultural property cultural property
information information loss information loss
Subsidiary Own High Own Low profits Own New
company custom company Low company market
No duty No market No No local
technology Low profits technology share technology information
sharing Low sharing No local sharing
market information
share Unfair
No local treatment
information
Unfair
treatment

Appendix: 3 (SWOT Analysis of CareCo)
Strengths
 Having experience in entering new
foreign markets
 Have a experience of working with
local distributors?
 High awareness of CareCo brands in
Ethiopian market
 15%-20% market growth
Opportunities
 30% growth in population
 Growth in demand
 Increase in GDP
 Better market opportunities
 Government interest in increasing FDI
 Strong government support
 Five years income tax exemption
 Encourage FDI for export-oriented
sectors i.e. manufacturing, agro-
processing and agricultural products
 Additional tax deduction
 Custom exemptions for capital goods
 Low cost of labor
 Limited market competition
2
Weaknesses
 Decline in revenue growth
 Lost first mover advantage
 Competitor has already started local
manufacturing
Threats
 A landlock country
 Limited law enforcement
 State monopoly or dominance in
telecommunication, power supply,
shipping and air transport and
financial services.
 The industries of media, retail,
transportation is reserved for domestic
firms only
 Government has promoted the
domestic pharmaceutical
manufacturing
 Infrastructure for cross border trade
and logistics has been ranked at the
bottom by the world bank
 Power cuts, internet outages and
telecommunication quality are low
 Fragmented distribution channel

Appendix: 4 (SWOT Analysis of ShoeCo)
Strengths
 It focusses on efficiency give it
success
 Already market in Ethiopia
 10% annual growth of its market
 High growth in exports
Opportunities
 30% growth in population
 Growth in demand
 Increase in GDP
 Better market opportunities
 Government interest in increasing FDI
 Strong government support
 Five years income tax exemption
 Encourage FDI for export-oriented
sectors i.e. manufacturing, agro-
processing and agricultural products
 Additional tax deduction
 Custom exemptions for capital goods
 Low cost of labor
 Limited market competition
2
Weaknesses
 Import only strategy
 Long term contract with the local
distributor
Threats
 A landlock country
 Limited law enforcement
 State monopoly or dominance in
telecommunication, power supply,
shipping and air transport and
financial services.
 The industries of media, retail,
transportation is reserved for domestic
firms only
 Government has promoted the
domestic pharmaceutical
manufacturing
 Infrastructure for cross border trade
and logistics has been ranked at the
bottom by the world bank
 Power cuts, internet outages and
telecommunication quality are low
 Fragmented distribution channel

Appendix: 5 (SWOT Analysis of MedCo)
Strengths
 Generic products
 Many subsidiaries
 Customer base
Opportunities
 30% growth in population
 Growth in demand
 Increase in GDP
 Better market opportunities
 Government interest in increasing FDI
 Strong government support
 Five years income tax exemption
 Encourage FDI for export-oriented
sectors i.e. manufacturing, agro-
processing and agricultural products
 Additional tax deduction
 Custom exemptions for capital goods
 Low cost of labor
 Limited market competition
2
Weaknesses
 Slow growth
 Smaller production
 Political disturbance
Threats
 A landlock country
 Limited law enforcement
 State monopoly or dominance in
telecommunication, power supply,
shipping and air transport and
financial services.
 The industries of media, retail,
transportation is reserved for domestic
firms only
 Government has promoted the
domestic pharmaceutical
manufacturing
 Infrastructure for cross border trade
and logistics has been ranked at the
bottom by the world bank
 Power cuts, internet outages and
telecommunication quality are low
 Fragmented distribution channel